Housing Construction Soars 10.8% in October

Housing construction soared 10.8% in October, the biggest rise in seven months, and analysts Tuesday predicted further strong gains as mortgage rates dropped to their lowest level in six years.

The Commerce Department said a big spurt in construction of single-family homes pushed the annual rate of home building to 1.76 million units last month.

The big increase--the largest since a 14.7% jump last March--had followed an 8.7% construction decline in September.

Analysts attributed much of the gain to the continued good news on mortgage rates, and they predicted further building increases as buyers respond to rates that have fallen even lower in recent weeks.

VA Cuts Rate

The Veterans Administration announced Tuesday that it was lowering the maximum rate for federally guaranteed VA mortgages to 11% from 11.5%. The change, which puts the VA mortgage rate at its lowest level in more than six years, marked the fourth decline in the rate this year. It takes effect today.

Fixed-rate conventional mortgages--those without any type of government guarantee--were being offered at 11.15% last week, the lowest rate since October, 1979, the Federal Home Loan Mortgage Corp. reported.

Jack Carlson, chief economist for the National Assn. of Realtors, said the big October construction gain reflected confidence on the part of builders that mortgage rates will remain low in coming months.

Carlson predicted further declines in mortgage rates through the end of next year.

Warren Lasko, executive vice president of the Mortgage Bankers Assn., said housing construction should remain strong in coming months, rising to perhaps a seasonally adjusted annual rate of 1.8 million units in November and December.

“Housing seems to be one of the few rays of hope in the economy. Just in the past two weeks, mortgage rates have come down about a half of a percentage point,” Lasko said. “I think the most likely scenario is that rates over the next three to six months will stay about where they are. It is very unlikely that they will go up.”

The big October rebound in housing starts came from a 15.8% jump in construction of single-family homes, reversing an 8.4% drop in the month before.

Apartment construction rose by 2.9% in October, failing to recover fully from a 9.1% decline in September.

James Christian, chief economist of the U.S. League of Savings Institutions, said apartment construction--at an annual rate of 637,000 units in October--probably will not go higher given the current surplus of rental properties.

While building permits for future construction fell 7.2% in October--the biggest decline since July, 1984--analysts noted that permits had been running ahead of actual construction for several months and were still at a strong level.

The big construction increase last month was fueled by a huge 37.8% advance in the Northeast, which put construction in that region at a seasonally adjusted annual rate of 310,000 units, the highest level since March, 1973.

The big jump in activity was credited to a boom in the region’s economy fueled by the growth of high-tech industries.

While housing starts also advanced in the South, rising 14.7%, home construction fell by 0.4% in the Midwest and by 3.4% in the West.